Many employers face lawsuits under the Fair Labor Standards Act (FLSA) for their alleged failure to compensate their employees. The FLSA imposes certain obligations with regard to paying covered employees. However, the FLSA does not apply to all employees. Exempt workers are not subject to the rules of the FLSA. While employers may try to classify workers as exempt or non-exempt, they do not get the final say.
Employers commonly face allegations that they misclassified employees for purposes of the FLSA. They have every incentive to designate employees as exempt, so they do not need to pay them more. But unfortunately for those employers, there are Department of Labor regulations that determine whether an employee is exempt.
There are two primary differences between exempt and non-exempt employees. They relate to:
- How much the employee is paid
- The type of duties the employee performs
While there are exemptions from the FLSA, they are narrowly construed. In other words, there is a presumption that the employee is covered by the FLSA unless the employer can show the employee is exempt. Working with Houston employment lawyers can help both employees and employers manage confusion over expectations and federal and state regulations.
The general rule is that, in order to be exempt from the FLSA, an employee must:
- Be paid at least $455 per week
- Receive their compensation on a salary basis (and not hourly)
- Perform exempt job duties
This is where things begin to get complicated. While the earnings test seems straightforward, the employer can take deductions from the employee’s pay that bring their pay below the minimum amount. When that happens, the employee would not meet the test to be an exempt employee.
In order to be paid on a salary basis, the employee must receive a guaranteed minimum amount of money per week, regardless of whether they have any work to do at their job. The employee’s paycheck must not decrease in a week when they worked less than usual. In addition, their salary must be computed based on an annual number divided by the number of pay periods.
Understanding Exempt Job Duties
The third part of the test is by far the most complex. The general theory of the FLSA is that exemptions should be limited to people who perform higher-level work. The FLSA is generally intended to protect people who do day-to-day manual work.
There are many categories of jobs that are exempt from the FLSA. One example is when the primary purpose of an employee’s job is to manage others. They must be responsible for at least two employees (non-employees such as independent contractors do not count), and they must have duties from a list provided in the federal rules. Merely supervising employees does not count. Instead, they must do things like select employees, plan work, and set hourly rates. As you can see, this is a limited exemption for performing the functions that senior managers tend to perform.
There is another broad exemption for “learned professionals.” People who perform these jobs are automatically not subject to the FLSA no matter what they earn or their role in the organization. The regulations define a learned professional as having a job with the following elements:
- The work requires specialized education
- The work is predominantly intellectual
- The position requires the exercise of discretion and judgment
Some examples of learned professionals are doctors, lawyers, and accountants. Even entry-level people in these professions would not be covered by the FLSA. While you may think this category is relatively clear-cut, employers often try to classify certain professionals as exempt in less straightforward situations.
The exemption that usually provides the most ambiguity and ends up being litigated most often is regarding employees who perform administrative job duties. This is nonmanual work that is related to the company’s business operations. It involves the exercise of discretion and independent judgment about matters of significance to the company.
Finally, there is an exemption for creative professions that require the performance of work to rely on invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. Actors, cartoonists, musicians, and similar professions meet the exemption.
Protections for Employees Covered by the FLSA
Once an employee’s status is established, a covered employee receives certain protections from the FLSA, including:
- Time and a half overtime for any hours worked that exceed 40 per week
- Coverage by the federal minimum wage
Employees who are in exempt positions have no protections under the FLSA. The employer can pay them a mutually agreed-upon salary and request them to work whenever it is needed. The employee’s primary way to protect themselves if they feel they are working too much or the employer is not paying them fairly is to find a new job. Even if a worker is in an exempt position, their employee benefits would still be protected by the Employee Retirement Income Security Act, commonly referred to as “ERISA” (assuming those benefits are covered by ERISA for non-exempt workers too).
The Number of FLSA Lawsuits Is Increasing
Both employees and employers need to be aware of the substance of the FLSA. Employees can file a lawsuit (usually as part of a class action) if they believe their employer was not following the law. Employers must be careful because FLSA verdicts and settlements can reach into the tens or hundreds of millions of dollars. In 2020, there were over 5,000 FLSA lawsuits filed, many of them involving wage and hour violations. FLSA litigation is increasing, particularly lawsuits relating to the classification of employees and how remote work is handled. What an employer claims about the exempt or non-exempt status of a particular employee under the FLSA is not always upheld by a court. It is safe to say the exempt/non-exempt question will continue to be an area of focus in the coming years for employees, employers, and courts alike.
To schedule a consultation, contact us today. The employment lawyers at Feldman & Feldman can work for you to protect your best interests.